Virginia and New York City are making it easier for workers to save for retirement

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New York City and Virginia have approved plans to help employers offer their workers an easy-to-access retirement account.

The two governments are the latest to sponsor auto-IRA programs, which are individual retirement accounts that act as an employer-sponsored plan (such as a 401(k)). Auto-IRA programs are touted as beneficial because they make it simpler and seamless for employees to save for retirement. These plans, like a 401(k), allow workers to defer a portion of their salaries directly and automatically, as opposed to leaving them to start and fund an account on their own.

The move comes as many workers grapple with saving for retirement. Only about half of workers in the private sector have access to a workplace retirement plan, a significant barrier in accumulating a nest egg for the future. These state and local-run programs can be a lifeline for many people as they give a direct link to a retirement account workers can fund.

State and local governments have slowly been implementing these programs across the country. Oregon, California and Delaware were the first to have the plans up and running, but there are 13 states and two cities in total who have enacted this or similar legislation, said Angela Antonelli, executive director of the Center for Retirement Initiatives at Georgetown University.

“With respect to auto-IRA programs, 2021 has been a great year,” she said.  

Workers in New York City and Virginia won’t be able to access these programs just yet. New York City’s board has up to two years to develop the program. Enrollment in Virginia’s program will begin in July 2023, said Natalie Snider, associate state director of advocacy at AARP. 

See: Auto-IRA programs are closing the coverage gap

More than $220 million has been saved for retirement in these programs as of March 31, of which $210 million can be attributed to Oregon, California and Illinois, Antonelli said. Collectively, more than 17 million workers are covered under the programs thus far. 

Colorado, Connecticut, Maryland, New Jersey and Seattle, Wash. have also committed to auto-IRA programs in their legislation. Massachusetts pursued a different type of retirement savings program, known as a voluntary open multiple employer plan (MEP), which Vermont is also implementing. New Mexico is working on a voluntary marketplace and voluntary payroll deduction IRA. Washington state has actively begun a voluntary marketplace. New York state is working on a voluntary payroll deduction IRA.

Other states and localities are in the midst of considering their own legislation for these types of plans — 19 states, including Hawaii, Wyoming, Pennsylvania and Maine, had legislative proposals or a study in progress in 2020. Georgetown Center for Retirement Initiatives has a comprehensive breakdown of what plans are available where, and what to expect in the coming year in regards to auto-IRAs. 

Critics have argued auto-IRA programs aren’t a substantial enough program for retirement savings, because there is a lower contribution limit than 401(k) plans (individual retirement accounts have a maximum contribution of $6,000, versus the 401(k) plan’s $19,500). Opponents have also argued these programs can become a burden to some workers, as well as employers. 

But these programs get workers saving for their futures — a key factor in amassing any sort of nest egg, experts said. Take Virginia for example. Approximately 1.2 million Virginians do not have access to retirement plans at work, Snider said, but in their research found people were 15 times more likely to save if the money was taken out of their paychecks directly. “‘Out of sight, out of mind’ is important for folks,” Snider said. 

The alternative can be distressing. In many cases, if workers are left to their own devices and aren’t inspired to save in an outside retirement account, they could go years, if not decades, without accumulating any wealth for their futures. The earlier an employee begins saving for their retirements, the better off they’ll be — even if they’re only able to contribute $50 or $100 a month. 

Also see: Don’t have a 401(k)? State governments have a retirement plan for you

With enough interest from the states, Congress may one day respond, creating its own program at the federal level, said John Scott, director of the retirement savings project at Pew Charitable Trusts. If not, the plans may still generate enough attraction to get some sort of federal incentives, ushering in more support for retirement security, he said. 

Even during the pandemic, workers with access to these auto-IRAs were contributing “at a healthy clip,” Scott said. “The takeaway here is we are seeing not just interest in the program, but it seems to be working well,” he said.



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